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tv   The Call  CNBC  March 4, 2010 11:00am-12:00pm EST

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explain why their insurance premiums are so high. oh, dear, we'll have a live report. vikram pandit is is set to testify before the t.a.r.p. oversight committee on his company's bailout. we will take it for you live when it happens. this is "the call" on cnbc. >> all right. stocks opened stronger, boosted by better than expected retail sales number in february despite the bad weather on the east coast and then the rally faltered after weaker than forecasted pending home sales report right now. take a look at the s&p 500. it is essentially flat on the session. it is just barely negative and it is off the lows of the session. the dow right now is trading on the plus side just barely. it is up seven points and 10,403 and the nasdaq is down about a point and a half. that's less than, you know, it's about 0.1% 2279. what's happening on the floor? >> the reality is there's some
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conflicting data out today. people are trying to reconcile how is it that you could have such strong sales numbers on the retail side and yet such poor pending home sales. so that's one issue. also, of course, was there some rather good news in terms of the jobless claims, however, you have to keep in mind that it was a pretty snowy couple of weeks and so perhaps a lot of people weren't actually filing. i want to bring in my pal bob pisani. i haven't seen you in a while. >> can we pull out on this shot? can you remember an appeal for the avengers? is it mod or what? i'm channeling her. >> i think i need sideburns and bell bottoms to be with you. >> that would work on you. >> from the avengers. real quick, the hemlines and i want to point that out because with the recovering economy you start to get the shorter hemlines and you're pulling that off. >> the economy is recovering and trish is the leading indicator. >> anyway, let's get to the real stuff. all of this economic news, it really doesn't in some ways make sense that people went out there
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and shopped especially when you look at those consumer confidence numbers for the month of february. so the confidence is down, yet they shopped and then in the meantime, retail sales, pending home sales were just horrible. >> by the way, the market came down on the disappointing pending home sales numbers and they plamed it on the weather, folks, but in fact, the numbers were really very good on retail sales. remember, the smart money has been long retail in the month of february because they believed that presidents' day and valentine's day was going to be stronger than expected and they would be right. they had stayed long in retail numbers is that good or bad? that is the best monthly gain since november 2007 according to retail metrics. we were expectation gain of 3.1% and with the storms in there and here's the irony. february was down 4.1%. so all these guy his great numbers and how come they're not up 5, 6, 7% and like i said, the smart money stayed long here so they have had this position for
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a while and there's not a lot to add to positions. >> it's a very interesting number and certainly a good sign for the bulls. let's move on to bank of america. >> yeah. everybody -- ul of this political rhetoric about the bailout and everything, this has been a windfall for the consumers of the united states, for the taxpayers because treasury has been collecting money, not just from the dividends paid on the preferred stock, but today they finally sold the bank of america warrants here. they made $1. 5 billion here, the net gain. remember, was there a hope that the big bailout of $45 billion, they've got warrants here and they're selling that and they've been selling other warrants of j.p. morgan and they'll sell more from city and wells fargo. this has been one heck of a windfall for the american taxpayer. there's bank of america which is pretty much sideways. >> the reality is if you're a politician trying to get re-elected what's politically expedient right now for you to do? sure. >> to go after these banks because no one in america likes the idea that they had to bail
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them out and you're right to point out they've made money on them. like gm. >> this was a once in a lifetime investment for the american taxpayer and it paid off. >> yeah, real quick, pending home sales data. do you find that somewhat surprising that that was so poor, yet retail was so good. >> smaller items like retail sales and people are still willing to open their wallets for bigger items and they have problems with. >> it's a lot easier to spend $1,000 than $100,000. >> thank you so much. >> larry, back to you. >> all right. thanks. the obama administration is kicking off a meeting with ceos of the nation's biggest health insurers and the reason, to find out why insurance premiums are so high and going higher. here's how some of them are trading right now. they're all trading down. what do you expect? they're under complete assault. cnbc chief washington correspondent john harwood joins us live from the white house with more. what are they saying, john? what are they doing? >> well, larry, the obama
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administration has been telegraphing its endgame strategy for some time here, trying to get the health care bill through the house and the senate with democratic votes only. the summit last week was part of that endgame and so is this event today with the insurance companies. the administration realizes that to create the conditions of public opinion that make it easier for their members to support health insurance reform, they need to put a bull's-eye on the insurance industry. >> i don't believe we should give government bureaucrats or insurance company bureaucrats more control over health care in america. i believe it's time to give the american people more control over their health care and their health insurance. i don't believe we can afford to leave life and death decisions to the discretion of insurance company executives alone. i believe that doctors and nurses and physicians' assist t assistants like the ones in this room should be free to decide what's best for their patients. >> now that was yesterday, the
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president in the east room in an event today. these insurance industry executives will meet with health secretary kathleen sebelius. all of the major companies, etna, cigna, wellpoint. we may see a drop by from the president to reinforce that rhetoric, larry and their vote-gathering operation with the democrats. we'll see if we can make it happen. >> all right, john. thank you very much for that update. now should the government be telling companies how to do their business? >> let's bring in erica payne, senior adviser of roosevelt institute and michael canon, cato's director of health policy studies. michael canon, one of the things that always strikes me as curious is poll after poll shows nearly 80% believe that their health insurance is good or excellent, and here is the white house with a full-scale assault as john harwood said, painting a bull's-eye on their foreheads. how do you assess that? how is this possible? what the heck is the disconnect here? >> well, if the government knew anything about running a health
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insurance company the medicare would be turning a profit instead of running an $80 thill ondeficit, and if the president wants to haul people around a conference table and berate them for small premiums he should be, with the governor of massachusetts around the conference table because it's in massachusetts where health insurance premiums are rising the fastest and that's precisely because massachusetts has enacted the obama health plan. >> erica, my concern about getting the government involved with health care is i was talking to a doctor who likes medicare patient because he gets paid three times from the government as what he's contracted with insurance -- health insurance companies. if they're running the whole thing it seems like it will get more expensive, no? >> i think it's really a question of values. do you want someone sitting on their hospital bed arguing with an insurance company over whether or not they should get a treatment. that someone who works for a living, should they have a low-level insurance employee
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arguing with them -- >> what does it have to do with medicare paying a whole bunch? what does it have to do with medicare paying a doctors a whole lot. >> it is the most efficient medical delivery system that we have in this country, and if you look at the health system as a whole in contrast, it's the least efficient, the most expensive and we're still 37th in the world. >> it the most efficient, michael? >> why is it 30 trillion in the hole -- >> erica, i'm not going deny that medicare provides medical services, but when you say it's the most efficient it's 30 trillion some odd in the hole. why is that? what does that tell us? how does that inform us? >> well, medicare is sponsored by the government and as such, it has an obligation to cover people. its obligation is not to make a profit. its obligation is to -- >> how about break even? >> you just said it was efficient. >> efficient means break even. >> the medicare system say very efficient health care delivery system. look at any report from any
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economist. it is an efficient delivery of the services that it provides. >> mike cannon, let me just go on to this, in this health care bill there will be massive regulation of insurance companies and they're going to face higher taxes. i just want to get you to comment. yes, there's a universal mandate, but regarding insurance companies they're going to order the benefits and they'll dictate the benefits and they're going to regulate the prices and they'll regulate the doctors and services reimbursement rates and they'll set up the boards and it will become a government-run insurance industry. >> it will be socialized through the private sector and it's completely disingenuous for the president and the supporters of the health legislation to say that they don't want private insurance companies coming between patients and their doctors. the price control commission that the president has announced or proposed would tell insurance companies no, you can't raise your premiums by 10%. you can only raise them by 5%. when insurance companies can't cover their costs they're going
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to start denying services and the cause is going to be that government price control commission. it's a tool for enabling the government to implicitly ration care without getting their hands dirty in any of those actual medical decisions. >> so you have a choice and they'll turnaround and plame that on the insurance companies rather than on the regulations. >> so the insurance companies, one of the insurance company that's in the news right now is wellpoint and they asked last year in michigan for a 50% increase in premium. so a normal individual who is paying maybe $8,000 on. >> erica that is complete fearmonger ago on. >> go up by $4,000. >> you can pick up a high premium increase like that any day of the year. >> exactly right and that's part of the problem. >> hang on. >> -- what you want to do is compare average -- what you want to do is compare average premium increases state by state and massachusetts has the highest average premium increases for any state in the union that has already enacted -- massachusetts
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has enacted the obama health plan. >> erica, how do you respond to the argument that his original argument that if they don't raise premium, the other option is they're just going to deny services. how do you respond to that argument because that seems like a pretty -- that is kind of the experience that you have if they don't raise your premium you end up getting less coverage and that does seem to be the tradeoff. how do you respond to that? >> everything is exactly right. they're denying coverage. they're raising premiums and denying coverage and 45,000 people died last year because they didn't have the right kind of health insurance. again, it comes down to this question of values. do you think that people who have worked their whole life -- sitting in a hospital bed. >> where do you get that stat from? >> larry and trish, may i add one thing? >> i just want to raise this point. >> please, go ahead. >> the left likes to talk about this bogus number of 45,000 people dying because they lack health insurance. the institute of medicine says 50 to 100,000 patients die every year because of medical errors.
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the number one contributor to medical errors is the medicare program that erica thinks is so efficient. >> so what is the answer? there are a lot of people out there watching this and saying my insurance premiums have gone up. my coverage has gone down. >> mandates. >> i don't like a government plan either. i mean, isn't the answer overall that we need to somehow get costs down and costs back in line? how do we do that? >> one size fits all doesn't work. these governments, erica, you are right about michigan. guess what? they mandate everything. they tell these insurance companies that you have to have these full cadillac insurance policies. there is no bloody choice in this system because all these state governments are meddling and what obama care is going to do is make the state government meddling nationwide? do you understand? there's no real choice, that's why costs continue to rise. if you put choice into the system, you'll have a much more efficient, real free market competition. >> right now 99% of the markets in this country are essentially
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monopolies and so the people making the decisions with 99%. >> don't you see, erica? i agree on that point. i want interstate competition for insurance, and i want the government to get out of mandating insurance policies. that's what i'm saying. >> there's no doubt. >> make real competition. >> i can't believe we're all agreeing. >> michael, do you agree with this? >> we'll all agree and then go to a commercial break. >> the main problem -- >> -- how are you going get to more competition. >> michael, go ahead. >> the main problem with america's health care sector is the wrong people control the money. the government controls half of the money and they delegate another quarter of the money that control over that quarter to employers and so consumers don't have any incentive to economize because the savings don't go to them. they go to an employer or they go to the government. we need to let consumers control the health care dollars. >> i'm pulling the plug because we're all agreeing. thanks to both of you for joining us. >> trish, over to you. >> oh, wow!
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obama care, political suicide, as i see it, but that's a discussion for another time. >> the gift that keeps on giving. >> yeah. hey, when we come back, guys we have vikram pandit getting ready to take the hot seat on the hill. citigroup ceo facing a grilling about the bank's bailout. we'll go live to that hearing. >> plus we'll go to oil titan boone pick ins on making money and going green. you're watching cnbc, first in business worldwide.
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>> welcome back, citigroup ceo vikram pandit on the hot seat preparing to get grilled any minute right now by lawmakers about the bailout and big stake going forward. citi shares, let's take a look if we can grab them right now. they're trading barely up there, 1%, 3.44. cnbc's mary thompson joins us from capitol hill with the latest on this one. hi, mary. >> hey, there, trish. the questions that the congressional oversight pan ole t.a.r.p. one answered today is why the government felt it needed to bail out citigroup. what did citigroup with the $45 million in t.a.r.p. money it received and how can citi assure taxpayers and shareholders that this type of bailout won't happen again? to that end in his prepared remarks today, citi's ceo vikram pandit is the bank is fundamentally different than it
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was two years ago. it's no longer focused on being a financial supermarket, rather, it's focused on solely being a bank and serving its clients. it boosted key capital ratios and scaled back on proprietary trading. pandit also says banks and taxpayers need a different road map, one that would include a systemic regulator, a resolution authority and a level regulatory playing field both here at home and abroad on a number of different issues including derivatives and the consumer. right now herb ellison, the point man on t.a.r.p. is answering questions on the panel and earlier today he had this to say about when the treasury might sell its 27% stake in citi. >> we are a very reluctant shareholder as mr. atkins pointed out. we wish to dispose of those shares into the public market as soon as circumstances permit in an orderly manner.
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you are not going to be an active shareholder and we will not interfere in the day-to-day practices of the company and we will only vote on certain well-defined and limited circumstances. >> among those circumstances where the treasury would vote is on the election of directors at citi. the exchange between allison and the panel members has been a little testy. they've been trust rated that he has not been more forthcoming about describing citi as a failing bank back in 200 and about the treasury's role in providing any guidance with citi. in that statement that you just heard from mr. allison he said we've been a reluctant shareholder and have basically tried to step away from those day-to-day operations of the bank. trish? >> it will be an interesting hearing to watch. certainly a lot of these politicians are probably going to make citi out to be another one of these big, bad banks. perhaps some fireworks. >> you're right, trish, but we want to point out these are not politicians that are asking the questions here. these are not lawmakers. they're members of a panel that have been selected from a number of different industries.
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these are not regulators, asking the questions today. >> that's a good point. so perhaps a little bit muted and then we can expect the political rhetoric to come thereafter. mary thompson, thank you so much. we'll continue checking back in with you. we want to head over to the breaking news desk. mr. nesto, what have you got? >> hi, trish. thanks very much. i'm tracking shares of rambus today. the company is surging on big volume. i have a street account briefing both citing a bloomberg wire report saying the patent office has given a split decision, if you will, in a feud with nvidia. one patent has been confirmed and one has been invalidated. shares of nvidia is soft or news and rambus up about 2% and both companies are reportedly able to appeal, and if i may also mention that tivo, a judgement here has been affirmed by an appeals court in a case versus echostar. the affirmation applies to 389 patent in the patent iningement suit. it concludes the district court
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cannot arc buz its discretion that modified software raised no substantial opening questions in dvr infringement. we're tracking both those tech movers in the patent space. back to you. >> thanks so much, matt nesto. coming up, retailers reporting bigger sales last month despite the wicked winter weather two retail analysts give us their bets. >> first up, oil man boone pickens joins us live from the wall street journal's eco-nomices conference. he will tell us how to create mill combhons of new jobs. you're watching cnbc, first in, worldwide.
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many of the world's top ceos, policymakers and industry experts are meeting today to talk about the intersection of business and the environment. oil titan boone pickens is among them and joins us from the economic conference in santa barbara. i'm disappointed to not be there with you this year, but let me start with the natural gas question. natural gas, our proven reserves seem to have jumped dramatically
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in the past year because of shale and a lot of different things. the price of natural gas is very low, this is good for you, but why is washington so focused on hybrids and other things with transportation when natural gas is so cheap right now? >> i don't know. i don't know, melissa. you've got 4,000 trillion cubic feet of natural gas which makes us number one in the world. we're bigger than rush a iran and qatar. we'd be fools and identifieda the dumbest people in the world if we don't capitalize on this resource and replace opec oil. >> j.p. morgan thinks the number is higher than the one you just quoted. don't they think it's 8,000 trillion bcf? >> that's in place. that's an in-place number. >> okay. >> then you've got to put a recoverable number. i just cut theirs in half and figure i'm safe with 4,000. >> that's terrible for wind, though, you have a huge investment in wynn. >> terrible for wynn? >> natural gas is so cheap, why
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would you use wind to make electricity if natural gas is so cheap. >> boone, my friend, get off the wind thing. those liberals would never let the wind thing happen. >> you won't believe the people i get to talk to because i'm for wind. you don't get to talk to those people, larry. >> boone, i love you. i have for 34 years. >> it's expensive, but i know those libs will never let you do wind, but i want to ask you this, to go back to melissa's point about the boom in natural gas and you're dead right, boone. of course, that's the future, best energy source for the future, but how do we get the car business to really employ natural gas? how do we move that into the automobile business? >> larry, it is so simple. what you do is go after the 8 million 18-wheelers and when the new 18-wheeler is purchased it would go to domestic fuel which would be natural gas.
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it's a southern california model. they did out there and then you've got to have some leadership. leadership is at&t for us, you know, we talked to them and they said gosh, it makes sense. it's a patriotic issue and besides that, it's cheaper and so randall stephenson made a decision to sart at&t in to natural gas, but the 8 million 18-wheelers, if we had those we would cut opec in half. >> yeah. one of the problems that you have with making natural gas a fuel for transportation is that oil isn't that expensive right now. gasoline isn't that expensive right now. barclays said earlier today that they think the range in crude oil will be 80 to 90 bucks over 2010. first of all, what is your bet and where is your estimate where you think the price of oil is headed over the next six months. >> you will see it, 85 and 90, but the thing about it is, melissa, compare one mcf of natural gas equals seven gallons
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of diesel. seven gallons of diesel is $21. one mcf of natural gas is $5. this is an unbelievable opportunity for america to go to a fuel our own resource in this country and a fraction of what we're paying the enemy for their oil. >> all right, boone. we love you, we've got to break out. we have victor pandit testifying over in washington, d.c. we've got breaking news on that. >> citigroup is now operating on a very strong foundation to generate sustained profitability for the benefit of all our stakeholders. for us, as for many other institutions, the bridge to the other side to sound footing came from the american people and i want to thank our country for providing citi with t.a.r.p. funding.
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last year we repaid $20 billion of t.a.r.p. investment and we paid $20 million as dividends and another $5.3 billion on the asset guarantee program that we have now exited. taxpayers still hold 27% of citi's common stock and we look forward to helping them make money on that investment. city owes a large debt of gratitude to the american taxpayers. we have renewed our financial strength and we have overall risk management and reduced our risk exposures and defined a clear strategy and we've made citi a more focused enterprise. at end of 2009 we are one of the best-kept banks in the world with the tier 1 ratio of 11.7% and a share a common ratio of 9.6% and $36 billion in reserves. our leverage is 12 to 1, down from 18 to 1 when i became ceo. we've cut the size of our
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balance sheet by 21% from its peak by half a trillion dollars and our riskiest assets have been substantially reduced. citi's cash liquidity is now $193 billion and we've reduced our operating costs by more than $13 billion per year. perhaps the most important strategic action we've taken is to mandate a return to basics, return to banking as the core of our business and as a result we've sold more than 30 businesses and substantially scaled back proprietary trading. citi is a better bank today, but for citi, being better is not good enough. our customers and america's taxpayers need a different road map. first, a lot still needs to be done to promote economic recovery particularly in the housing area. since 2007, citi has helped 824,000 families in their
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efforts to avoid foreclosure, total loss mitigation solutions increased by 50% versus 2008 and we remain number one in active modifications. in 2009 citi originated 80 billion of mortgages and provided 80 billion of credit card lending and in addition, our company used t.a.r.p. funds specifically to support new lending to individuals, to families, to communities and busine businesses taxpayers have a right to know how we put that money to use and we were the only bank to publish regular reports on the use of t.a.r.p. capital. second, citi supports reform of the financial regulatory system. america and our trading partners need smart, common-sense regulation to reduce the risk of bank failures, mortgage
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foreclosu foreclosures, lost gdp and taxpayer bailouts. i know these are issues that are being debated right now, but let me share with you three areas i think are important. first, financial institution reform. let's address too big to fail once and for all through the creation of a systemic risk regulator and a resolution authority. by making sure banks are banks and focused on clients. second, market reforms. let's level the playing field with common standards across the entire financial sector. let's create transparency particularly in the derivatives markets with the use of standardization and clearing houses and third, consumer reforms. we support the need for a strong consumer authority that is part of the regulatory system to promote greater transparency,
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sound practices, growth and stability in the consumer credit market. banks and non-banks need to be more responsible. these are reforms that could be costly for the industry, but citi believes they are necessary. thank you, chair, members of the panel for this opportunity to review citi's progress. >> thank you very much, mr. pandit. again, we appreciate your being here today. i'd like to start with a little quote from the emergency economic stabilization act or t.a.r.p., as we've all come to know it. >> right. >> where treasury is to assure that its authority is, quote, used in a manner that protects home values, college funds, retirement accounts and life savings and preserves homeownership and promotes jobs and economic growth. that was -- that was congress' statement about why t.a.r.p. was done and what treasury is authorized to use money to advance those specific goals.
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in a june 22, 2009, reuters article you are quoted as saying we will be playing the two growth themes very clearly. one is globalization and the other is growth in emerging markets. wilbur ross this morning referred to citi as essentially a foreign bank. so the question is why should the u.s. taxpayer alone carry citi? >> madam chair, we're not a foreign bank. we're a global bank. we're america's global bank. we started in business years ago helping america's business eses export their products and that's what we've been doing this particular time as we need growth and we need jobs it's each more important that we help small business e medium businesses and large businesses make those exports. as we do that we need operations on the ground and in many of
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these operations we raised deposits to help large companies in the u.s. get loans on the ground they need and as well, some of those deposits help us facilitate loans in the u.s. market. >> you describe your growth as globalization and growth in emerging markets. it sounds like these are your words about where you plan to expand your activities. we are completely focused on making sure that we continue our lending to u.s. customers. and declines our customers for the issues they're facing. now it's also very clear that our clients are coming to us. small clients, middle-sized clients and large clients and they want to tap foreign consumer basis, the growth is coming from the foreign consumer. and that's how they create jobs. and we have the businesses in
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america&get to the other side. and the u.s. enterprises for u.s. operations. >> our total loans outstanding for all u.s. businesses about $450 billion. >> i can shrink that up? >> it's want all u.s. businesses. the question i at least wanted to ask about is u.s. enterprises for u.s. operations, jobs in america. >> i think the number is $450 billion lent in the u.s. >> can you divide that into -- how much to lend to businesses that don't have foreign operations? >> madam chair, i can't do that, but i can get back to you. >> that's fair. so, can i ask one other thing about just the lending that you do? >> what lending and other transactions has citi participated in involving the government of greece? we do business with a lot of sovereign countries who need our
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global expertise including the u.s. markets and so i know we've been doing business with greece, but i don't have the details about me. >> do you know how much debt the government of greece -- debt from the government of greece that citi holds? >> i don't know the exact number, but i know it's not a large amount, not a meaningful amount in our entire operation. >> not a meaningful amount. >> okay. good. that's fine. mr. atkins? >> thank you, madam chair. thank you very much, mr. pandit, for being here today. it's a pleasure to have you take time out from your busy schedule to be here. i asked this of assistant secretary allison last time and i want to explore it with you and it has to do with the offering back in december. it seems that the timing and experience of that particular offering is something that we'd not like to repeat and obviously the taxpayer now is the largest single shareholder of citibank.
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as an executive with a background in equity markets in experience with the capital markets. and i was wondering if you could share reflections on how the treasury department should think about monetizing its position in citibank's common stock going forward? >> mr. atkins, of course, that's the treasury's decision in terms of how they want to do it. we do know that they'll be able to sell stock after march 16th and they've announced publicly that they do want to sell stock over the next 12 months or so. and there are a lot of different methodologies from doing it in the market every day, but also we believe there's substantial demand for the stock. it is not a secret that the government wants to sell. it is not a secret that the stock price in the markets today are reflecting the fact that they're a seller in a large amount and that we believe there are investors here in the u.s. who are getting ready for that
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offering as to how they do it, when they do it, with whom they do it. those are all the treasury's decisions. >> when you look back at the offering in december and it was a primary offering and try be to be coordinated by eight potential secondary offering by the government. the marketplace, was there a large cover issue for that offering at the time or what exactly was the problem that we saw in december? >> mr. atkins, that was the largest common stock offering ever done in the u.s. >> right. >> and particularly when you consider that as the percentage of citi's common stock outstanding, it was extremely large. don't forget, that was done in the face of the market knowing the government was going to sell its 27% and not too distant future. they have a choice, do i buy now and do i buy later and those are the backgrounds. it was late in the year in doing that offering and by the way, when we did that offering
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unfortunately another bank decided they wanted to do a large offering right in the middle of what we're doing. we got it done, and we got it done as the largest offering and we were able to pay back the taxpayers and we were able to exit the guarantee program. i consider that to be success. >> okay. now looking forward to you have a stock price of about $3 a share or so which, of course, puts it in a special zone as far as some institutions and the way the market views it. what do you all have as far as plans to address that price of the stock in relation to the huge amount. you are now -- i guess have the largest number of shares outstanding of any new york stock exchange-listed company. >> we're also the most traded stock among many days in the new york stock exchange. the last i came it was $3.44. >> okay. >> i think at the end of day stock prices are important, but
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what's really important is performance. what you earn, sustained profitability which is really what i'm focused on. my biggest job is to make sure we make money on a sustained basis and therefore help the government make money. >> in your testimony you mentioned that you've sold, out of citi holdings after having restructured your firm, and the no n non-core businesses and i think you said more than 20. so i was wondering what -- how did you all decide as far as what is core versus what's not core? >> and that was job number one for me coming in to citi looking at the businesses and trying to figure out what business are we in. what clients do we serve? what are we good at? you put all those things together it turned out at the end of the day we are a great bank that is basically in the business of helping people
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manage their accounts, providing them loans and providing them capital, providing them investment services and it became very clear that we were in a lot of businesses that were not directly related to being a bank and so the fundamental decision that i made is that we're going to be a bank. we're going to be the global bank for america's companies serving them here, but also wherever they want to go, but not only for companies but the same cap ability should be av l available to individuals as well. that's the decision we made and on the basis of that it became very clear what was not core, it was a large part of the company and that's what i've been selling very systematically over the last two years. >> my time's up, thank you. >> mr. silvers? >> yes. thank you, chair. >> again, mr. pandit, i want to commend you for being here and express my appreciation both for your presence and your
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testimony. you said a moment or so ago that in trying to focus what citigroup is good at that you view paternity core banking as the primary direction you were headed and you mentioned some numbers about loans. i have here the report i'm sure you're familiar with from standard & poor's from the last month that shows -- and the numbers don't match, so i wondered if you could explain it to me, that shows that commercial and corporate loans by citigroup have fallen dramatically over the last two years. that from a level of according to s&p, $206 billion in the year 2007, $227 billion today or the end of third quarter, i believe, 2009. i don't think they had the fourth quarter numbers at that time. in view of the -- my understanding that your
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divestitures have largely been unrelated to commercial loans k you explain to me what's happening here? >> sure, mr. silvers. when we decided what was core and what's not, there were also assets that were part of what was not core to us as well. they were either clients that we shouldn't be serving or they didn't need us or they were businesses that were not core us to and they were assets that were gathered through core businesses and so those numbers reflect selling businesses that are not core to us. selling assets that were not core us to, taking any marks on assets that were not core us to, and let me assure you as well. >> mr. pandit, i don't understand how you can reconcile that type of -- the scale of that retreat from business lending which s after all, in my view, just absolutely central to whether or not t.a.r.p. is succeedi succeeding. the scale of that retreat of business lending with a characterization of refocusing on core banking because i look at other numbers and i don't see
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that type of retreat from other types of activity other than, obviously, things that you're totally divesting from. >> let me assure you. we will make any good loan that we see to a client, the regulators want us to make prudent loans and we are doing that. some of those were leveraged loans. they were part of practices that we shouldn't have been part of. they're not core to the banking mission, so it's very easy to look at those numbers and think that they actually represent our lending appetite or our appetite to serve client, but that isn't so. that reflects the narrowing and focusing of our businesses to what we should be as a bank. the second question about this type of issue. in the area of commercial real estate which has been a concern of this panel. again, my survey of the data suggests a kind of flat line in terms of the total assets in
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commercial real estate in the -- at the holding company level portfolio of around $75 billion to $80 billion. my question about that is i wonder how -- have you taken any writedown in commercial real estate and how do i understand this flat level in the -- and are writedowns coming? >> a number of things, one, a lot of that portfolio is mark to market. we have taken writedowns. much of that portfolio is community lending and that's very good as well. there are some accrual loans that we've made and those loans are well reserved against. let me also say that most of our loans are for office buildings against leases and some of the major metropolitan areas so that's a very well scrubbed over portfolio. i'll make one more point on this which is that that's less of an issue for citi. >> i can then turn to another question about your core strategy, and i think my time
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will then expire. as i understand it, and correct me if i'm wrong, you've been telling the world that you're going to be focussed in addition to what might be described as really old-fashioned banking in two other areas that you will continue to have a significant capital markets desk to derivatives currencies and the like and you will be continuing to put focus on your global transactions services business which has been the sort of consistent problem over the last year. am i reading it back to you correctly? >> that's correct. >> okay. yves heard, i think, a fair amount about the extent to which the gts business makes a city particularly significant. it is my understanding from press accounts that this was a core argument citi made to the government during november 2008, that citi could not be allowed to fail because of the importance of the business to the global capital markets.
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my question to you is can you justify having that business connected to the type of capital markets desk you intend to keep connecting it to in light of what appears to be taking something so systemically important and then tying it to something so relatively risky? >> let me start by saying i don't recall making that statement to anybody nor does -- nor do i recall anybody who directly works for me making that statement? which statement, sir? >> the statement you said -- sorry, about the fact that this was the argument we made to the government about systemic safety. >> okay. well, then let me ask you this. would you commit here that as long as you're at citigroup that you will not come to the government in the future and make the argument that the gts business requires being bailed out should your other businesses go south? >> yes. >> let me commend you for giving me a straight answer. it's a rare experience in my role. >> i think that's why we're here, mr. silvers, for straight answers i want you to hear from
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me what we're doing at citi and why we're doing the right things. also for the treasury as a sharehold shareholder. >> my colleagues will indulge me. >> let me explain to you. we do business for coke and pepsi. coke is in 250 countries around the world. they need to manage their operations. we do everything for them from cash management to custody to clearing settling for them. they need foreign exchange management. they need liability management. they need interest rate management so we have to have those operations to serve them in that particular way. the fundamental shift that i made was to make sure that our creating operations and our can cash management operations and all our banking operations are geared towards doing those things that our clients need and by the way, if you do that correctly, having been in the business for as long as i have, those are the kind of businesses
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that generate good value for clients without creating the risk that has been created in the system. >> all right. welcome back, everybody. we'll take a little time out and chew on what mr. pandit is saying. let's go to our senior economics reporter steve liesman who has some thoughts. hello, steve. >> one of the issues that's want spoken yet and maybe it will make it to the table there is the issue of the volcker rule and whether or not citigroup needs to separate the client trading from the prompt trading. what pandit has been saying over and over again is it's not an issue for us because i have been changing the company to get out of the prop trading business and orienting everything towards banking and service for the client. that was number one. number two is earlier in his testimony he kind of punted on this issue of consumer protection and how close it should be to safety and soundness. he said it should be linked, but didn't go further than that. >> did you think the first answer was a dodge on the volcker rule or did you buy that? >> i think it's a dodge. i think they need to ask him directly. should banks be allowed to
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engage in proprietary trading and then he would be useful -- >> he's right to dodge. >> it's just a terrible idea and it's going down. >> right. but it would be useful testimony, larry, if they asked him can you separate prop trading from client trading at the bank. >> which most people have said you can't. he is trying to make the case that there's a core bank that doesn't use proprietary trade. >> i just want to say one thing. trish, i know you want to get in. i thought mr. pandit equated himself very well and i enjoyed his commentary. the one thing i don't get is is elizabeth warren saying global banking business is bad. >> making him defend being a global bank. >> a zero-sum game that in he helps american exessex port goods and services overseas that's a bad thing. i thought 17th century free protectionism was over. why is elizabeth warren doing this? >> this is the worry that because of what we saw happen
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that we're going to hear more and more of this kind of rhetoric. granted, these aren't the politicians, but there's a direct link there, i think between the kind of sentiment we're hearing from them with comments like elizabeth warren's, larry, and what we're going to then hear in the political arena, because why not? it's expedient for them. >> can i speak up in defense of 17th century mercantilist. they were more global back then than elizabeth warren seems to be right now. >> isn't that what brought the original tea party movement anyway? >> protectionism and mercantilism was thrown out in 1776 and. >> didn't we all do that? >> i was there at the first tea party which i think was 1775 and as melissa correctly depicted, that was a revolution in economics and global trading. so i think victor -- vick pandit did a great job defending that. i was really impressed with him
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and he gave us a seminar on the benefits of economics. >> if i open a bank branch in another country, does it mean i'm closing a branch in the u.s. >> it's a ridiculous argument. >> isn't this a populist argument that we'll probably hear more of as people worry about this economy, though? >> you know, i don't think so, trish. i think elizabeth warren tends to be out there on a lot of these issues. >> oh! >> she's not going to return your phone calls anymore. >> i don't see elizabeth warren as a center. i think it's possible, but the idea of criticizing a bank for being global and servicing coke and pepsi throughout the world. i was in russia for eight years, six years, and i saw how the global bank set themselves up and they're the leading edge of global trade for american companies. without them and the accountants and lawyers setting up shop, america could not be global at all. so i think it is absolutely vital and i don't think elizabeth warren is is on that issue at all. >> it was striking that he wanted to thank the american public or he wanted to thank the taxpayer for saving the bank at
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the beginning and that caught us off guard. we'll listen back in right now. >> we made significant changes in the financial health of the company. we've made significant changes in the risk management of the company, but we've also targeted the company towards those businesses that helped clients and don't necessarily create the risk that has been created in the past, but let me also say i do think we need regulation, which is why i said in my opening statement, let's get to that resolution authority so that this never happens again. >> okay. one more quick question. you are a veteran of the capital purchase program. what advice can you give for how that program can be improved. it's ongoing. i mean, there's money on the door. not every institution has repaid t.a.r.p. funds. how can it be improved? >> the t.a.r.p. funds were, from what i understand, put in place.
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a lot of the reason was to inject capital into the banks and not only so they could lend and they could do the right things for the american people, but it was to create a sense of confidence. we took the confidence in the financial system off the table. that was the point on that. for those people who still have t.a.r.p. funds, i don't have any other advice but to say to step in and make sure that you manage your business to take the costs out that you need to manage it as efficiently as possible and start creating a story and a business model that can translate into earnings because that's the best way in which the capital markets can give you equity which you can then use to repay the government. >> okay. >> thank you. >> thank you mr. mcwaters. superintendent neiman? >> if you were here, and i believe you were in the back when i was questioning mr. allison. i highlighted that the mortgage crisis really gave rise to the
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financial crisis and for that reason i was very pleased to see in your written testimony as well as in our oral testimony you referenced your efforts toward foreclosure mitigation and in your written testimony highlighted the fact that citi has the highest percentage of eligible loans in active modification, mortgage modifications at 50% trial as a percentage of eligible mortgages and though you can be applauded for that outreach effort, i think a more important metric is is the actual conversion that took it to permanent, sustainable mortgages. i believe the last report from treasury has 110,000 of mortgages that are in active trial mods. with the extension of treasury through january 31 we are now awaiting results from all institutions, but i think
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anxiously awaiting your results as well as to how those individuals were treated, and i think the important part is these are individuals who have been willing and able to make these reduced payments and are awaiting final determination. we than there have been problems at servicers. we know there are problems in the appeal process. so can you give us any information about what we may expect to see in the decision with respect to those trial mods. >> mr. neiman, i completely agree with you that attacking the issue of housing is important for the economy, but particularly for our customers, our clients as well, we as the assistant secretary said we're number one in modifications right now. he stated 60% as the number. right now the ratio of completions is 18% of that. we think that number will go up to 40% maybe, pretty soon. that's where we think it's going go and not everybody who's gotten into that program is
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necessarily going to qualify because they may not have the documentation. they may not have the information that's necessary to do that which is why what we've done is we've created a citi modification plan on the other side. if you don't qualify and you don't meet every standard we still have modification plans for these people going through this particular change. >> do you see documentation? because this is as think i've heard from other servicers, partly, we've heard concerns on the resources and process, the servicers losing documentation and we've instances of borrowers reluctant or producing wrong documentation, but i am also very concerned that treasury has not given enough discretion to servicers and lenders to make those decisions. have you found that or would make any recommendations and changes in the documentation process? >> let me say the treasury has made changes and they are positive changes and they're the
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kind of changes that i think will have a positive impact on modifications as well. let me also say we have 4,000 people doing this for us. i've hired 1400 people in the last year to make sure we can help people. >> this is interesting. he's doing a good job. >> that will do it for us here on "the call." i'm melissa franceis. >> i'm trish regan. >> i'm larry kudlow. see you on "the kudlow report" at 7:00 p.m. eastern. right now "power lunch" is up next. and welcome, everyone, to a thursday "power lunch." i'm tyler matheson, one of the poster children for the bank bailout is on center stage at this hour. citigroup ceo vikram pandit now testifying in front of a t.a.r.p. pan ole capitol hill and the questioning is under way. >> i'm sue herrer a the health insurers feeling the heat over rising premiums. industry executives are now at the white house and they're meeting with the obama administration. once the summit is over, the ceos of
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